Mastercard at Deutsche Bank Conference Notes

Ed McLaughlin – ‎President, Operations & Technology

AI will eliminate toil

” AI is a huge topic. I mean, we could probably spend the rest of the day on it. And I think this is a great example of technologies that have been around for a long time, that are now coming into the fore. And what we think about in that [indiscernible] time is applied research, right? How do we take these new capabilities? Not for what they do, but to apply them to what we do to make them better. So broadest thing that I could give you around the topic as big as AI, machine learning, automation, a lot of these new capabilities that we can now leverage.

I think about the three broad categories; the first, is how can we use it to eliminate, what we call, toil, and that’s to separate it from work, all right. Work is how you add it. Work is what you make and create and where productivity and economic growth come from. Toil is just doing the same thing over again and over again and over again. And I think there is a whole trend in the industry, the idea is you take your toil and try to package it, try to offshore it, try to get to the lowest cost location as possible, and for me, that’s pretty much over.

Now we have the ability to eliminate it entirely. And so, Andrew Ng, a Stanford Researcher, was with Baidu for a while, calls it the one second rule. Pretty much today, any decision will take you about a second, is it blue [ph]? We can use AI to automate. So we are going through relentlessly each of the workflows we have and say what our longest running, what our most expensive process is, and you can begin applying these technologies to eliminate net [indiscernible] to free our resources up for more value added work.”

Mastercard at William Blair Conference

Martina Hund-Mejean – Chief Financial Officer

Run around the world

“So from the United States point of view, we are still seeing consumers behaving pretty well, so I think the market is doing very well. We see really no different trends than what we had seen before.

If you go to Europe, Europe is–you know, some countries are doing well, like Germany; some other countries are doing a little bit less well, like the U.K., France, Italy. Of course in Europe, you have some different cross-border trends coming in given the weaker pound, so that means everybody outside of the U.K. loves to come to London, but the Brits are not going to be able to spend quite as much as what they would like to do in Spain and other countries where they like to go for vacation. But for us, the trends are really offsetting trends, so there is no net-net plus or net-net negative, but it’s an offsetting trend.

If I go to Asia-Pacific, Asia-Pacific is also doing pretty well. I know a lot of you are talking about China and looking at that, but despite China, we are seeing that the rest of Asia is doing okay. India is doing very well, and even in Australia we are seeing some good trends there.

Going to Middle East-Africa, that’s a little bit more of a difficult story, especially when you look at the oil producing countries like Nigeria, etc. That continues to be relatively stressed, you see really cross-border declines in that. Domestically, you don’t see a lot of increase, so that just continues to be the same story. We really haven’t seen any different trend there.

Then when you go to Latin America, despite the most recent political issues in Brazil, Brazil is doing very well, that continues to drive a good economic environment. Mexico is doing well, Argentina is doing okay, Colombia, Chile. The only real negative spot in Latin America is Venezuela, and we’ve been talking about that a number of times before. So net-net, when you look at our volumes, there is really no new news to report.”

Still secular growth opportunity in the US

“When you look at our volumes and in terms of what we’re producing, there are a couple of things going on. One, of course, personal consumption expenditure is going up, as I just told you, which we are benefiting from, but even in the United States, you still have the secular trend from cash and check to electronic forms of payments. After all, only about 60% of the personal consumption expenditure in the United States is electronified, and about 40% is still done in cash and check, so there is a lot of growth opportunities, and every year you’re seeing a little bit of that coming through in our numbers too.”

Visa’s (V) at the Bernstein Annual Strategic Decisions Conference

Alfred Kelly, Jr – CEO

There is opportunity in Europe

“the glass is half full I think as it relates to Visa in Europe….So there is an enormous amount of opportunity in Europe….I think we’re off to a good start, I think we’ve got good momentum but frankly, we have a lot of work to do but I again consider that a good thing because the opportunities are well worth the effort that we have to and will put into it”

Regulatory overhang makes for an uncertain Europe

“if one of the other things about Europe that is a bit different than the rest of the world is the regulatory overhang there ….when you’re in a business like ours, you have to figure out how to work with regulators and work with the rules that are put in place whether you love them, like them or don’t like them. I think that much of what’s going to play out in Europe is still to be played out, it’s very, very early innings”

India is a growth opportunity

“India is a very interesting market to watch, it’s much more open and therefore I think exciting in the short-term…we’ve seen 50% rise in merchant locations since the demonetization on November 8, we continue to see a 100% increase year-over-year in terms of our volume”

The best road to go with the phenomenal Amazon is partnership

“I think first and foremost, what Amazon has done is nothing short of extraordinary; I mean they have set a standard in terms of e-commerce that is just phenomenal….they are very customer centric and they believe in consumer choice and they are not trying to steer people in certain directions. So we have a very good relationship with them, we continue to work to do everything we possibly can to be a very good partner of theirs and our sense is that’s the best road to go down and best — we’re best served by just making sure that we stay close to them and we’re serving them well.”

On risks

“Cyber security and regulation; the ecosystem — and neither of which are particularly easy to control. The ecosystem is built on trust. Payments work because they are convenient or they work when they are convenient, reliable and safe. And so a major cyber security hit or series of them could disrupt the trust that people have in the system and that’s certainly concerning; therefore we spend a boat load of time and a heck of lot of money.”

Mastercard 1Q17 Earnings Call Notes

Ajay Banga – MasterCard, Inc.

Not much has changed in economy

“Now turning to the economy, broadly speaking, not much has changed since the last quarter. We’ve seen modest pickup in global growth, in part due to market-specific fiscal stimulus, although uncertainty about the direction of trade policies continues to be a concern. In the U.S., consumer and business confidence remained strong. Employment is rising. Wages are beginning to increase.”

Brazil emerging from recession

“In Latin America, Brazil is showing signs of emerging from its two-year recession, and we continue to see modest growth in Europe with the unemployment rate nearing a 9-year low. Germany remains solid. There’s slower growth in the UK, Italy, and France, driven by rising inflation and some uncertainty around the impact of Brexit negotiations. Regarding travel, we are seeing increased inbound traffic into the UK due to the weaker pound. However, outbound consumer spend has declined in the case of the UK.”

Brazil is turning a corner

“So, Don, you’re absolutely correct that the international markets have in the last, I would say not just this quarter, over the last six to nine months, things have been moving up in the international markets. Remember, Brazil was one of those big markets for us that was holding it back. Brazil is turning the corner. I wouldn’t yet call it a reshape movement, by the way. I’m looking at a kind of flat U. It’s stopped declining. It’s improved a bit. This is a good thing. There’s a lot going on in Brazil on the political and economic environment that still has to pan out for this to be a continued improvement, but it’s a way better than it was a year ago at this time. So that’s the first one.”

Lower growth in China but Korea and Hong Kong are fine

“China is interesting. There is lower growth in China, but Korea and Hong Kong remained very strong, so it moves around. But if I were to focus on cross-border, it would be Europe and North America that are showing results, with Brazil as well. And then the others come a little after that.”

India still not totally back to normal because of cash withdrawal

“Overall, GDV is still impacted. I think if you spoke to consumer product companies that are large in India, a Unilever kind of company, they would tell you they still see an impact on total consumer volumes and downsizing of inventory in the retail system because of some non-availability of adequate cash for transaction capability. So there’s an interesting mix going on. You’re seeing more electronic. You’re seeing a little more cash, still not back to where it was, but it’s headed in the right direction, but more importantly, headed in the right direction with some tailwind on the need to fix towards electronic versus more cash. That’s what’s going on underlying all this.”

Debit cards growing but still a heavy reliance on cash

“Now let me give you a couple of numbers that will tell you the magnitude of what has to be done there. So there are about 840 million debit cards in India, and those have grown by 20% – 25% over the last six months. This is a huge number. But of those, 770 million of them only take out cash from ATMs. Only 70 million of them have been used more than once at a point of sale. And therefore, the total volume of the number going through these two, the ones that I use for cash at an ATM, it’s $450 billion a year, the ones that are used for point-of-sale transactions $30 billion. So we’re talking a very cash-heavy marketplace with a great deal of reliance on cash as the instrument of driving the economy. That’s what they’re trying to work their way through.”

Mastercard at Barclays Conference Notes

Linda Kirkpatrick – EVP

Opportunities for new electronic payment

“. So the traditional merchant verticals that I mentioned earlier are fairly well penetrated with respect to electronic payments. The verticals that are not as mature or more nascent are rent, education, consumer loans, utilities, so these are businesses that are much more reliance on half stack and you see it as a form of payment and it’s in those verticals that we really see the opportunity to convert a significant amount of volumes, trillions of dollars in volume over to electronic.”

84% of global transactions are in cash and check

“So we talk about 84% of our world transactions are conducted in cash and check today. And when we look individually at the merchant verticals they each bring their own unique value proposition to us and we are motivated to expand those acceptance categories and to capture those transactions. Every transaction to our network represents an additional opportunity to generate revenue and to capture data, so we’re highly interested in expanding our reach.”

Apple Pay is a container in which MasterCard products can be loaded

“‘d say again Apple Pay is a container in which MasterCard products can be loaded. As it Samsung Pay as is — as it’s not the path frankly. So to the extent that those players are growing and building their platforms and we’re partnering very directly with them was giving them our tokenization technologies so that they can build those efforts when they grow so do we. So it’s from our perspective a positive that everyone is focusing on creating a safer more secure way to pay online as that’s where we see the trends moving.”

We play an important role in the process

“Well, I don’t know where regulation is going to go and how the new administration is going to look at Durban and other regulation that has been enacted but I’ll say as we play a very neutral third party role and interchange. It’s a unique industry that we’re in where interchange needs to be set in a way that promotes issuer to issue the card and also promotes merchants to accept those cards and that balance has to be incredibly well managed, otherwise it will stop the ecosystem as a whole. So from our perspective, someone needs to manage our process. We can’t expect millions of merchants to be able to negotiate separately with banks, but they – is not going to have the opportunity to do that.”

Visa at Barclays Conference Notes

Vasant Prabhu – EVP & CFO

Step up in drivers of business

“Sure, as you said and as you heard when we had our first quarter earnings call, we certainly have seen a tick-up in what I would call the drivers of the business, which is what we like because that is in the end what counts. We saw, as we told you on the call a step-up in payment volumes, almost everywhere except a couple of places like Brazil, a nice step-up in Europe, certainly in the US, we were helped by gas and also we were helped by the portfolio wins we’ve had like Costco and USAA.”

Currency is one headwind we remain concerned about

“The one headwind that we remain concerned about is currencies, a stronger dollar certainly hurts us both from an translation standpoint, as well as in its impact on our inbound US business.”

Chinese growth isn’t changing. It’s ok, not great

“Chinese growth isn’t changing, that still I would say, okay, not great, but at least it’s stabilized, the rate of growth is not declining. Oil economies have stabilized. So, cross-border commerce out of there is returning. And then beyond Europe, so we are picking up stuff in Europe that we might lose here and that helped us in the first quarter because there was a massive amount of inbound commerce into the UK and frankly into many parts of Europe because of the weak euro and then the strong dollar moderated. I mean it isn’t getting weaker, but it’s not getting stronger at the same rate.”

Visa FY 1Q17 Earnings Call Notes

Alfred F. Kelly, Jr

New CEO

“I just completed my first quarter at Visa, and past my two-month mark as the Chief Executive Officer. I think, as many of you know, I’ve been a board member since early 2014, so I’ve been involved in the business and was a party in approving the company’s strategy and priorities.”

A good chance to make the necessary investments in India with govt support

“I think for us very importantly, and strategically this is a build opportunity that the government really has put out there in front of us. And so in my mind, at this point I’m much more focused on capitalizing on this opportunity and investing heavily behind driving both awareness for consumers and incentive for merchants to get signed up. There’s only a very fractional amount of the merchant community in India that is enabled today to be able to accept electronic or digitized payments, and we want to try to get that number up as much as we possibly can. So I think when you consider the economics of the investments we’ll make in India, plus a fairly conservative pricing, it’s certainly not going to be a market in this fiscal year that’s going to drive a lot of profit for us. But I think, it’s a great year for us to make sure that we do everything we can in one of the two largest population countries in the world to get as good a position as we can to help us over the next decade.”

Thoughts on Trump

“I think, it’s too early to tell. I mean, we’re barely two weeks into this presidency. And while the President has been active with executive orders, I think that as things start to settle down and we get into more specific policies and his cabinet is confirmed and in place and the legislature gets going, I think it remains to be seen what happens. I will tell you this, that we have a world-class group of government relations people who are already fully engaged as much as we can in the relevant conversations in Washington. But I think there’s things that relate to trade, relate to taxes, all of which could play into our business. But I honestly just think it’s too early to start to speculate. And we’re certainly not building anything into our plans positively or negatively for that matter related to any policies that might come out. But I can assure you that we’re watching it very closely.”

Mastercard 4Q16 Earnings Call Notes

Ajay Banga

Global economic overview

“We continue to see bright spots as well as some areas of concern in the global economy in the US. Post-election optimism remains relatively high. Consumer confidence, unemployment, wages all seem to be holding steady. It’s still too early to tell what impact any new policy proposals might have on the US or other economies. But like all of you, we’re expecting to see initiatives around taxation, regulation, infrastructure spending and trade. And in fact on regulation, you’ve all seen the recent executive order talking about taking out two regulations for every one proposed. Turning to Europe, the economic recovery is persistent in many markets throughout the prior year, throughout 2016, led by Germany. And the prospects for this coming year of 2017 seem encouraging as economic sentiment and unemployment continue to improve. The UK appears to be stable. We’re seeing continued growth in travel to the country as a result of the weaker pound, and it’s going to take a few years obviously to work through the specifics of how Brexit is implemented. So, we remain watchful of the implications of that on the UK and broadly on the EU.”

India move towards electronic forms of payment

” In India, the government has recently implemented a plan to address its parallel economy and to help drive the shift from cash to electronic forms of payment. Given the heavy reliance on cash in that economy, this is expected to soften consumer spending in the short term, but could well fuel economic growth and modernize the payment system in the long term.”

I don’t believe that the administration wants to restrict trade

“The aspects of trade, Tien-Tsin, as you know, my normal approach to trade is that I continue to believe that the United States is way too large a marketplace for companies and businesses to feel that they shouldn’t be involved with having on-soil presence and on-soil activity and frequent travel in and out by business executives alike. So, I consider the US to be too attractive for that to change dramatically. I do believe like everybody else that in the corporate world, there are a lot of us have built our business on the freer flow of cross-border trade, data and people. If that were to change over time, that would be a problem, but I don’t believe that that’s what the administration wants to do. They want to grow the economy. The economy is not going to grow without the right inputs in the right places. It may change specifics of the way trade gets enacted, but I continue to be relatively bullish on where this economy could go over the next four to five years.”

Dislocation of demonetization in India

” So, India has only 1.4 million terminals actually at the point of sale, and it tends to be a very cash dominated market. I’d say 95%-plus of the transactions in retail are cash. When the demonetization happened, the two biggest currency notes were taken out of circulation, the INR 500 and the INR 1,000 notes constituted 86% of the currency notes in circulation. That’s the shock that is referred to as what could lower consumer spending for a couple of quarters. We saw that because restrictions in cash withdrawal from banks and from ATMs were instituted as the government tried to catch up with the demand for cash. With the new notes, they were printing, those notes had to be put into the market. The ATMs had to be redesigned. Their hoppers had to be redone. Or you can just imagine the level of work in a country where the largest public sector bank has 18,000 branches, and is spread across a relatively large country. So, that’s what caused some of the dislocation…I think the Prime Minister is to be credited for his willingness to take it on, because in the medium to long term, this could be transformative for the way India’s economy operates in the recognizable formal economy, as compared to the informal economy, where it’s denied taxation and denied credit and denied insurance. I think he’s really trying to do something pretty brave here.”

Visa at UBS Conference Notes

Vasant Prabhu

Most of our growth has come from conversion of cash to electronic payment and that has been boosted by the smartphone

“And the global economy hasn’t been booming for the last five years, in fact if you look at personal consumption expenditures globally in real terms — in nominal terms they’ve only grown about 2% or 3%. So, if we were dependant strictly on personal consumption expenditures, we’d be heart stretched to grow our revenue much more than 2% or 3%. The other seven points of growth has come from the most important thing in our business which is the conversion of cash to electronic forms of payment, the digitization of cash. So it’s what we call personal consumption expenditure penetration by cards.

And what is making the biggest difference there is technology. So, today if you live in the Bay Area, you don’t never have to use cash, because thanks to Square and dongles and you can pay for parking with cards, you can pay for taxies, you can pay for everything with cards. And that is a revolution. So, every smart device is both a potential digitized card or a point of sale. So, what’s phenomenal for our business is — mobile is the future, because if you go around the world, of course they’re bypassing landlines; remember the old Visa business was built on hardwires, landline that went from bank-to-bank and so on, and from merchant-to-bank and processor and so on. Today every smartphone or every mobile is either a point of sale or a potential device to use to pay. That is a revolution and extraordinarily attractive to us.”

We are not in China

“Yes from the very beginning when it was announced a year ago that China was opening up, if you listen to everything we said we urge everyone to be cautious on a whole range of front. So I think by and large I think our caution has been filled right. It’s taken the lot longer to get to the point where we can even submit an application and once you submit an application they have to get us a license and then once you get a license we have to get a proximity infrastructure up and running in China. And remember that we don’t operate in China today. We have a nice business in China that is a cross broader business, but we have no real domestic business in China. Visa cards are really not prevalent in most of China, because there was a government monopoly there and we’re not allowed to participate in the domestic market. So we have to build acceptance, and that can take time it costs money.”

Not sure what the economics will be like in China anyways

“And then China already have a relative well developed card based economy as well as alternative payments like Alipay, Tenpay and so on. So it’s a very competitive market it’s not clear what the economics are because when it will setup, it will setup more as a public good and so we have to figure out what the future economics of the business are going to be. So in the short run it’s waiting till we can get started, then it’s a lot of investment and expense, so it’s quite a while before China is something that will meaningfully contribute and we have to be careful in how we do this because it’s not totally clear what the right business model is for China. Because it is a different kind of market and it’ll have to evolve as we go along.”

China has done a very good job of digitizing cash

“China is very unique. I think the Chinese have done a spectacular job of digitizing cash compared to other emerging economies. Between what some of the internet players have done like Alipay and others and what China UnionPay has done, they have actually made a lot of progress in both building card — having cards out there, building the acceptance base and then driving volume. So in many ways China has moved far ahead of a lot of other emerging economies and has evolved in a very different way from them. So I think you go into China, normally we go into countries and we are the pioneers, right, we are the ones who are out there doing the missionary work in building acceptance and building digitization of cash and all that. We go into China where somebody is else has already done that. ”

What makes Visa Visa

“Yes, look Blockchain is a technology that we are watching closely from everything that we hear from our technology people, it’s not something that is easily used in our kind of business which is low ticket transactions with very high volumes. It seems to be more applicable to lower volumes sort of larger transactions and so initially I think the commercial cases are all in back office type clearing systems, where there is certainly an opportunity because a lot of what happens in the back office is not as efficient as it could be. So certainly Blockchain and we are watching it given investment in one of the companies is being used in these kinds of systems and there are experiments going on in other areas, and we’ll watch this closely. But remember that it is very important to remember that yes we are at heart a processing and technology enterprise, but there are three components to what makes Visa, Visa. One is the technology and yes it’s possible there are other technologies that could do what we do, but the real power of Visa is the other two things, which is our network and remember that we are essentially in network of 42 million points of acceptance being connected to 3 billion card holders. So you can have a technology that does what we do, but the real value is in the loans you have in the network. We have to somehow create the network too. So you got to watch both. Is there a technology that can do what we do, but how do you build that network and the chicken and egg issues that go with it. And then on top of all that is our brand because if you are going to carry something in your wallet that is as good as cash and as a result of it you are not carrying cash, it better work all the time.”

Some things have changed in the past two weeks

“we just had our earnings calls less than a month ago, and we went through in some detail what we saw going on around the world. I would say on the margins things are still the same, but clearly in the last two weeks we have seen the few big shifts. I wouldn’t say big shifts but we have seen some shifts and the bulk of the shifts have been in currencies as it relates to our business. In a week the world’s economy can’t change but currencies did move and that does have an impact on our business.”

Mastercard 3Q16 Earnings Call Notes

Mastercard’s (MA) CEO Ajay Banga on Q3 2016 Results

Perspective on the economy largely unchanged

“Our prospective of the economy remains largely unchanged since last quarter you’ve all seen the U.S. GDP growth report this morning. We’ve continued to believe like we said in the previous quarters that the U.S. is on a steady growth path with consumer confidence, unemployment, and wages holding firm. Of course, unless something unforeseen our growth coming out of the upcoming elections, but basically the U.S. had a steady growth path.”

Markets across Europe showing gradual recovery

“Many markets across Europe are showing a gradual recovery, led by Germany, as economic sentiment hold steady, unemployment rates are continuing to decline. Although uncertainties from Brexit and its impact on Europe remain a concern, I think it will take a few years to understand the full implications. ”

Picture is still mixed in Asia, Brazil seems to be bottoming out

“In the Asia the picture is still mix. In China, both exports and imports were down sharply. And you all know the concerns over inflated asset values. In Australia, however, business confidence is up, and India continues its relatively strong growth trajectory. In Latin America, Brazil even though is expected to remain in a recession for the near future seems to be bottoming out. And the political environment seems to be stabilizing, which should hopefully improve economic condition over the next six to twelve months. In Venezuela, the political and fiscal crisis is deepening. In Mexico, the economy continues to expand, but with increasing dependence on consumer spending growth.”

China outbound increasingly going to other Asia

“So the first part, the second part, which is actually a transactional piece of information on outbound China. I think you’ll find growth to certain parts of the world, but not to others. It’s not coming into the U.S. and Europe as it used to. It’s actually going much more to the Asian markets, so Australia through Japan, so those parts of the world. That’s actually similar to what I may have said at Investor Day, but I don’t fully recall if that question came up. But that’s kind of what we’ve seen on the China part of it.”

No one has figured out safety and security

” anybody who will tell you that they figured it out of safety and security. It’s probably somebody you should run a mile from, because there is no such right answer. There is a continuous effort of people break into everyone systems. You read that all the time. So you only have as good in safety and security as the efforts you keep putting into it to keep your clients having products and capabilities that keep them — keeping their promise to their consumers. So we recently launched a series of products that use our official intelligence and machine learning in the safety and security phase. We are going to keep doing that.”

My IR person gets nervous when I speak because I don’t stick to the script

“So first of all I’m glad you called them prepared remarks, Barbara’s, also nervous when I’m speaking because she’s tracking all that I’ve said. I don’t always follow the script. But I will use your comment as proof of my being relatively helpful. The second part is the UK, so to the other question, I’m just cracking up a little. I’ve taken it out on Barbara for 10 years of this. So the UK, be careful about assuming that a lower currency will necessarily lead to inbound travel, either tourist related or business related. It works in a place like the UK because it is one of the world’s most attractive tourism destinations.”

Outward US travel strong still, inward weak

“Kind of shopping destinations, the U.S. right now inward tourist traffic is down with the dollar being strong whereas outdoor travel by Americans is quite strong. And so those are just natural things that we ought to do as well.”